Category Archives: Directors

By Edward M. McNally on November 26, 2014 Posted in Case Summaries,Directors,Fiduciary DutyIn Re Novell Shareholders Litigation, C.A. 6032-VCN (November 25, 2014) When does a board act in bad faith so as to not be entitled to exculpation under a corporate charter? As this decision explains, mere mistakes in complicated negotiations do not come close to supporting a bad faith claim.… Continue Reading

By Edward M. McNally on September 25, 2014 Posted in Case Summaries,DirectorsIn Re Cornerstone Therapeutics Inc. Stockholder Litigation, C.A. 8922-VCG (September 10, 2014) This is a great decision to read to understand the pleading standard that applies to a complaint that alleges a controlling stockholder transaction. Even in such a transaction, the disinterested directors are not liable absent proof of a breach of a non-exculpated breach… Continue Reading

By Edward M. McNally on May 28, 2014 Posted in DirectorsBishop Macram Max Gassis v. Corkery, C.A. 8868-VCG (May 28, 2014) This interesting decision explains the status of a de facto director and what that means in terms of the validity of actions taken by such directors. In general, their actions are valid. The decision is also another illustration of the duties owed by… Continue Reading

By Edward M. McNally on February 24, 2014 Posted in Directors Flaa v. Montano, C.A. 9146-VCG (February 24, 2014) This decision affirms the standing of someone not yet elected to the board to seek relief under Section 225.… Continue Reading

By Edward M. McNally on April 17, 2013 Posted in DirectorsKalisman v. Friedman, C.A. 8447-VCL (April 17, 2013) When may most of a Board of Directors deny another director access to the advice of counsel the majority received? This decision answers that interesting question and concludes "not very often." There are exceptions to that general rule, such as when there is a board committee involved whose… Continue Reading

By Edward M. McNally on November 9, 2012 Posted in DirectorsT.R. Investors, LLC v. Genger, C.A. 3994-CS (November 9, 2012) A Section 225 action is supposed to be limited to the narrow question of the composition of a corporation’s board of directors. Subsidiary questions, such as who owns what stock, may be resolved as well but are generally not binding on persons who are not… Continue Reading

By Edward M. McNally on October 1, 2012 Posted in DirectorsShocking Technologies Inc v. Michael, C.A. 7164-VCP (September 28, 2012, revised October 1, 2012) Everyone agrees that a director should speak up even if he disagrees with the rest of the board of directors. But when does a director go too far in his opposition to policies he wants to change? In this decision, the Court… Continue Reading

By Edward M. McNally on April 10, 2012 Posted in DirectorsShocking Technologies Inc. v. Michael, C.A. 7164-VCN (April 10, 2012) A year or so ago, the DGCL was amended to permit the removal of a director by the Court of Chancery. While the grounds to do are broadly stated (including "breach of the duty of loyalty"), the statute requires that the director first have been convicted of a… Continue Reading

By Peter B. Ladig on July 6, 2011 Posted in Case Summaries,Derivative Claims,Directors,M&A,NewsThis article was original published in The Delaware Business Court Insider | 2011-07-06 On May 31, Vice Chancellor Leo E. Strine Jr. issued an opinion denying a motion for preliminary injunction to halt a merger between Massey Energy Company and an affiliate of Alpha Natural Resources Inc. One of the critical issues in the opinion… Continue Reading

By Edward M. McNally on June 3, 2011 Posted in DirectorsGoggin v. Vermillion Inc., C.A. 6465-VCN (June 3, 2011) The Delaware Supreme Court has held that when there are staggered terms for the members of a board of directors that the annual stockholders meetings must be about 1 year apart. In this case, the next board meeting was set for June, 2011 or 6 months after… Continue Reading

By Lewis Lazarus on May 25, 2011 Posted in Directors,NewsLewis H. Lazarus This article was originally published in the Delaware Business Court Insider | May 25, 2011 Two recent decisions from the Court of Chancery — In re Orchid Cellmark Inc. Shareholders Litigation and In re Answers Corp. Shareholders Litigation — illustrate how parties may reduce deal risk by ensuring that the directors… Continue Reading

By Lewis Lazarus on March 24, 2011 Posted in DirectorsInvestors who make substantial investments often demand a seat on their company's board of directors. That is a reasonable request as it permits the investor to have a representative on the board of directors with a voice in management of the company. It is well-settled that directors elected by stockholders of a Delaware corporation owe fiduciary duties to the company and all its stockholders once they serve on the board. Thus, they may make decisions in the exercise of their fiduciary duty that are different than what is in the best interest of designating investor. The Court of Chancery's recent decision in Air Products and Chemicals, Inc. v. Airgas, Inc., 2011 WL 519735 (Del. Ch. Feb. 15, 2011) reflects this issue.… Continue Reading

By Edward M. McNally on August 16, 2010 Posted in DirectorsGrayson v. Imagination Station Inc., C.A. 5051-CC (August 16, 2010) Determining if a claim is direct or derivative is often difficult. Here the Court explains that a claim asserting the directors are acting outside their authority in violation of the relationship set out in Section 141 of the Corporation Code is direct. The facts of this case… Continue Reading

By Edward M. McNally on July 12, 2010 Posted in DirectorsHampshire Group Limited v. Kuttner, C.A. 3607-VCS (July 12, 2010) This decision holds that the Unifrom Contribution Among Joint Tortfeasors Act applies to claims against directors. While at least 1 other court agreed with this point, this is the first Delaware decision on this issue. This is important becaue it has serious implications to settlements with some… Continue Reading

By Edward M. McNally on February 9, 2010 Posted in DirectorsKurz v. Holbrook, C.A. 5019-VCL (February 9, 2010) This significant decision holds that you cannot eliminate a director by amending the bylaws to reduce the number of seats on the board of directors. Of course, this only came up in the odd context of a stockholder who could not vote for directors and hence could not vote… Continue Reading

By Edward M. McNally on September 28, 2009 Posted in DirectorsCity of Westland Police & Fire Retirement System v. Axcelis Technologies, Inc., C.A. 4473-VCN (September 28, 2009). This is the first Delaware decision to deal with the so-called Pfizer policy on when directors may be retained despite a shareholder vote on dissatisfaction. Axcelis had a bylaw that any director up for re-election who did not get a… Continue Reading

By Edward M. McNally on July 14, 2009 Posted in Attorney Fees,Directors,LP AgreementsDavid A. Stockman v. Heartland Industrial Partners, LP, C.A. 4227-VCS (July 14, 2009) This is possibly the best decision to read to understand how to interpret the often confusing advancement and indemnification rights contained in limited partnership agreements. The discussion of the history of those rights under Delaware law is very useful as well. There… Continue Reading

By Edward M. McNally on March 23, 2009 Posted in Case Summaries,DirectorsSutherland v. Sutherland, C.A. No. 2399-VCL (Del. Ch. March 23, 2009) This decision is a good outline of the effect of Section 144 of the Delaware General Corporation Law ("DGCL") that permits transactions to be judged on their merits, even if they are with interested directors. After explaining that law, the Court went on to… Continue Reading

By Edward M. McNally on February 24, 2009 Posted in Case Summaries,Directors,Fiduciary DutyIn re Citigroup Inc. Shareholder Derivative Litig., C.A. 3338-CC (Del. Ch. Feb. 24, 2009) After the recent decision in the AIG case denying a motion to dismiss a complaint, there was some concern that perhaps the Court of Chancery was loosening the pleading requirements to state a claim under the Caremark line of case… Continue Reading

By Edward M. McNally on February 10, 2009 Posted in Case Summaries,Derivative Claims,DirectorsAmerican International Group Consolidated Derivative Litigation, C.A. 769 (Del. Ch. Feb. 10, 2009) The Court of Chancery is often faced with the difficult task of deciding when a complaint has enough factual allegations to survive a motion to dismiss, particularly when there is no self dealing by directors and the business judgment rule is… Continue Reading

By Edward M. McNally on February 6, 2009 Posted in Case Summaries,Derivative Claims,DirectorsIn re: Affiliated Computer Services, Inc. Shareholders Litigation, C.A. 2821-VCL (Del. Ch. Feb. 6, 2009) Determining when a derivative complaint should be dismissed becomes complicated when the composition of the board of directors changes. What board do you look to to determine if a demand must be made on the board before suit may… Continue Reading

By Edward M. McNally on January 27, 2009 Posted in Case Summaries,Directors,Fiduciary DutyGantler v. Stephens, C.A. 132,2008 (Del. Jan. 27, 2009) This is an important decision because it limits when stockholder approval of a transaction has the effect of ratifying director action. Moreover, it limits the effect of stockholder ratification by holding that the business judgment level of review still applies to the directors’ action, rather… Continue Reading

By Edward M. McNally on January 2, 2009 Posted in Attorney Fees,Case Summaries,DirectorsRyan v. Gifford, C.A. 2213-CC (Del. Ch. Jan. 2, 2009) In this decision the Court approves the settlement of a stock option back dating case. The opinion carefully goes through all the analysis of when to approve a settlement, particularly when the recovery is adequate under the circumstances. The attorney fee award of… Continue Reading